A blog of the NYU Colloquium on Market Institutions and the Leipzig Colloquium on the Market Order

Josh Hendrickson on the bailout

Over at The Everday Economist Josh Hendrickson has a nice post using the theory of Big Players to help explain why the bailout has done little but stir up market volatility.He puts his finger on something important.When a crisis hits, the authorities improvise.The sudden jump in Big Player influence increases uncertainty and herding, thus making the crisis worse and encouraging, perhaps, another increase in Big Player influence.

Josh concludes, “the government really wants to help, they can start by setting the rules now and following through on their promises.So long as they continue to change the rules on a daily basis, uncertainty will prevail, the stock market will remain volatile, and the credit markets will remain frozen.”